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10/19/2011 @ 12:20PM6,271 views

Abbott Labs Joins Breakup Parade

Abbott Laboratories has long been a one-stop healthcare conglomerate, with products ranging from major drugs it develops in house to branded generics, diagnostics and medical devices. That is changing, with the company announcing Wednesday it intends to split in two parts: a diversified medical products company and a slightly smaller pharmaceutical research & development business.

Chairman and Chief Executive Miles White called the breakup a “dynamic change in our company’s 123-year history, strengthening our outlook for strong and sustainable growth and shareholder returns.”

White, who will helm the $22 billion (revenue) medical products operation, said that side of the business, which keeps the Abbott name, “will be one of the largest and fastest-growing global diversified medical products companies, with a compelling portfolio of durable growth businesses in medical technology, branded generic pharmaceuticals and nutritionals.”

Thirty-year Abbott veteran Richard Gonzalez will remain atop the pharma R&D business, which will be spun off to shareholders with Gonzalez as Chairman and CEO. That $18 billion (rev) business will continue to develop its existing pipeline and explore new products in areas like “immunology, Multiple Sclerosis, chronic kidney disease, Hepatitis C, women’s health and oncology.” The pharma R&D unit generates the majority of its revenue from developed markets. (See “Abbott Ditches Its Drug Business.”)

Abbott becomes the latest company to announce a breakup in 2011, and its split echoes many of the themes seen in its predecessors across a number of industries. Like ConocoPhillips, Abbott is cutting loose a slower-growing business, and like Kraft Foods it is spinning out a more U.S.-centric business and keeping a unit with more exposure to emerging markets. The new Abbott already draws about 40% of sales from EM, a figure that is projected to grow. (See “2011: Year Of The Breakup.”)

In addition to the breakup announcement, Abbott also issued third-quarter results Wednesday that offered further evidence of the reasons behind the split. Global revenue was up 13.2% to $9.8 billion, a solid gain in a choppy environment, but emerging markets revenue was up even more, 21%.

Abbott booked earnings per share of $1.18 to top estimates by a penny, and narrowed its full-year guidance to EPS of $4.64-$4.66, higher on the low end from a previous range of $4.58-$4.68. The Street expects $4.63 EPS.

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Good column Steve – and don’t forget Sara Lee in that list of companies using spin-offs. When management cannot figure out how to grow the business, a spin-off hides the growth stall and poor overall performance behind a veneer of claimed “strategy.” However, companies do not do better after spin-offs, they do worse! Because the underlying weakness is not “fixed” simply by an asset re-organization. Read why this news is the time for investors to sell Abbott at this Forbes column http://onforb.es/qpFBBD

You’re right Adam — Sara Lee is in the gallery I’ve been updating to keep track of some of the higher-profile companies that have been breaking up this year.

I think you make an interesting case on Abbott. Not sure if every spinoff is a bad thing, but one thing is clear: the investment banks still get their fees whether the trend is integration or disintegration.